Suppose that for consumers A and B trading goods 1 and 2 in a general equilibrium...

Suppose that for consumers A and B trading goods 1 and 2 in a general equilibrium framework

uaxa,1,xa,2=xa,1∙xa,2 and ubxb,1,xb,2=xb,1+2xb,2

The initial endowments are given by ωa=(2,2) and ωb=(3,2) . Depict graphically the Edgeworth box including

Its dimensions
The location of the initial endowment
Each consumer’s indifference curves.

Note that in part (c), I just looking for you to depict the general shape of these indifference curves; you do not have to plot them out using the mathematical functions.

Expert Solution

An Edgeworth box helps us study the resource distribution between two individuals and determine efficient trading patterns to achieve maximum utility.

For the above case we see:

Total endowment of good X1= 2+3 = 5

Total endowment of good X2= 2+2 = 4

(a) Plotting good 1 on horizontal axis and good 2 on vertical axis, dimensions will be 5 units and 4 units respectively.

(b) Initial endowment is shown on point (2,2) and (3,2) for A and B respectively.

(c) The shapes of Indifference curves will be convex for A and downward sloping straight line for B. This is because utility function for A denotes a normal choice of goods between 1 and 2. Utility function for B is that if substitute goods.

See image.

Kindly note that as demanded, the shapes have been depicted without mathematical plotting. Thanks!

Rahul Sunny answered 8 months ago

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